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Can Alfa Romeo and Maserati Capture the High-End Car Market for Fiat Chrysler?

Alfa Romeo and Maserati are low-volume brands with big plans.

In the merger that created Fiat Chrysler Automobiles(NYSE:FCAU), the potential expansion of sales under the Fiat, Chrysler, Dodge, Jeep, and Ram brands has gotten the most attention. But Fiat Chrysler also has plans to go after the luxury end of the market and is gearing up to use its Alfa Romeo and Maserati brands to claim it.

Let's look at what Fiat Chrysler has laid out so far and where these two automotive brands could be headed in the future.

From compact to high-endWith a wide range of brands under its roof, Fiat Chrysler has acquired model lines ranging from entry-level compact cars up to vehicles in the six-figure range. But the idea of having such a wide range is not unusual in the automotive world.

Volkswagen Group AG extends from low-cost compacts under the Volkswagen brand all the way up to supercars from Lamborghini and rolling palaces from Bentley. Toyota, Honda, and Nissan have also built new brands at higher price levels: Lexus, Acura, and Infiniti.

While Fiat Chrysler does plan to spin off Ferrari, it's retaining Alfa Romeo and Maserati, and the automaker group expects lots of growth from them ahead.

Alfa RomeoThis Italian automaker left the U.S. market in the mid 1990s and was perhaps best remembered for its Alfa Romeo Spider. But as followers of international auto sales will know, Alfa Romeo still produces cars for the European market.

Now, Alfa Romeo is returning to U.S. shores with the 4C, a two-door sports car available in coupe or convertible styles. The return to the U.S. market has been predicted for a long time, since U.S. expansion was seen as one of the main benefits to Fiat's acquisition of Chrysler in the first place.

Alfa Romeo 4C. Source: Alfa Romeo.

But investors should watch for what Alfa Romeo does next. The return to the U.S. market will make the brand available to more customers, but Fiat Chrysler wants to turn Alfa Romeo from a niche brand into a brand prominent among car buyers.

The 4C is the first step in Alfa Romeo's expansion, but the automaker also plans to launch an entire line of vehicles. Autoblog notes that this line will consist of a new midsize vehicle, two new compact vehicles, one new full-size vehicle, one new specialty vehicle, and two new utility vehicles -- although not all of these may make it to the U.S. market. Little is known about these vehicles, so it's difficult to analyze the potential of each.

While the high end of Alfa Romeo with its 4C will stretch up into the $60,000 price range, the automaker will also have compact cars coming in at much lower price points. To save on development costs, some of the midmarket Alfa Romeo vehicles are likely to share platforms and parts with other Fiat Chrysler vehicles. This approach will allow the automotive group to offer a wider variety of vehicles without incurring excessive costs.

The full-size vehicle may address the high-end market and will be important for investors to examine once it's released, but the 4C is Alfa Romeo's current high-end offering for the U.S. market, so let's take a closer look at that.

Porsche Cayman. Source: Porsche.

Results of comparison tests seem to have come down against the 4C in comparison with the Porsche Cayman from Volkswagen Group. Car and Driverpicked the Porsche Cayman over the Alfa Romeo 4C in a fairly decisive scoring tally. Road & Trackleft a bit more room for the 4C, saying that "the 4C and Cayman aren't rivals at all," labeling the 4C as a car that wakes up the driver and the Cayman as more reserved. However, Road & Track noted that the appeal of the 4C would fade with daily driving compared with the Cayman's "depth of character" that makes it attractive.

But while the Cayman is probably the closest competitor to the 4C, Alfa Romeo doesn't expect to sell anywhere near the same number of units as the Cayman does. When the head of Alfa Romeo and Maserati was asked about 4C sales forecasts, he said, "We will never, ever be able to produce more than 3,500 a year." That number contrasts with the nearly 8,000 Caymans or Boxsters (the soft-topped version of the Cayman) sold in North America alone during 2013.

So on a units-sold basis, Alfa Romeo won't be a major challenger to Porsche in the sportscar segment for now. Instead, the 4C will generate smaller sales and bring prestige to the Alfa Romeo brand, possibly helping to sell the less expensive models. Investors should keep an eye on how Alfa Romeo markets the 4C and whether it uses the car to drum up brand interest.

MaseratiWhile Alfa Romeo is gearing up for expansion, Maserati has been seeing enormous year-over-year sales increases. For 2014, the automaker sold 36,500 units, which was 136% more than in the previous year and nearly six times as many as in 2012.

Driving this increase is the Maserati Ghibli, which accounted for 64% of the sales. Starting at just under $70,000, the Ghibli is Maserati's least expensive car and demonstrates the automaker's strategy to boost sales by offering less expensive models.

With the Ghibli, Maserati now has a chance to go after the market share of current high-selling sports sedans such as the BMW 5 Series and Audi A6 instead of remaining a niche top-end luxury maker.

Maserati Ghibli. Source: Maserati.

Sales of Maserati's other vehicles, including the Quattroporte, GranTurismo, and GranCabrio models, have also moved significantly higher, contributing to Maserati's sales growth. Besides updating and adding models, Maserati sales have also benefited from a larger dealer network.

Autoblog notes that Maserati finished 2012 with 220 to 230 dealerships worldwide, but that number increased to 355 by late 2014 and the automaker is targeting 450 by the end of 2015. The U.S. will be particularly in focus with this network, as it will receive about a quarter of the dealerships.

And at these dealerships, Maserati plans to have four new vehicles to sell. This year, the Maserati Levante is poised to launch as the automaker's only SUV. This approach follows in the footsteps of Porsche, which introduced the Cayenne SUV, now accounting for 44% of North American sales. I see the Levante as a new opportunity for Maserati to appeal to buyers outside the sportscar and sports sedan segments, and the reaction to the Cayenne shows significant potential if executed right.

Porsche Cayenne. Source: Porsche.

Following in the next two years are the Alfieri Coupe and the Alfieri Cabrio, to bring additional variety to the Maserati line. And in 2018, the GranTurismo is slated to return to the Maserati lineup.

Combined, the automaker hopes to sell 75,000 units on an annual basis by 2018, which would represent another doubling of Maserati sales. The expansion of Maserati is set to transform the brand from a niche luxury carmaker in 2012 to an automaker comparable to Jaguar in sales.

It's difficult to quantify the 2018 model year, considering all the variables involved, but the expansion of Maserati is a bullish sign for Fiat Chrysler, which is trying to ramp up its economies of scale throughout its operations.

The bottom lineAlthough Alfa Romeo and Maserati aren't expected to sell anywhere near as many units as the larger brands of Fiat Chrysler Automobiles, these vehicles are essential to claim market share in high-end markets.

Under Fiat Chrysler's plans, these two automakers are being taken from niche players in the global auto world to companies with the sales volume to take advantage of the economies of scale Fiat Chrysler is looking for and grow market share. Going forward, investors should keep an eye on Alfa Romeo and Maserati, as their sales will determine how successful Fiat Chrysler can be in the high-end market.

Author

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.